Divergences From the 2000 Apocalypse

 | May 01, 2014 | 7:34 AM EDT  | Comments
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Stock quotes in this article:

grub

,

king

,

zoes

,

yelp

,

crm

Once you brand a market with the curse of the 2000 Nasdaq market top, you have to immediately see if things are staying on course toward tech-stock apocalypse, or whether they will naturally right themselves.

On this front, there's good news for the bulls: In the last 48 hours, we've seen some attempts to halt the rendezvous with destiny that's now becoming common currency.

What are the signs that we don't have to end in oblivion? First, have you noticed that the initial-public-offering fountain has turned into a trickle?

We had been getting two, three four deals a day routinely as the weeks progressed. And the type of deals seemed to be the same: cloud-based, software-as-a-service to some part of the enterprise. A few weeks ago we had so many software-as-a-service IPOs coming that we seemed to have one or two come public almost every single day, hence why I started saying these deals had become software-as-a-disservice to your portfolio, or SAAD, instead of software-as-a-service, or SAAS. There were way too many to keep track of.

In fact, there were a couple of sessions when the things were so chaotic from all of the IPOs that some couldn't even be declared effective on the morning they were supposed to go. Plus, consider the hoopla we saw: characters dressed as food -- GrubHub (GRUB) -- characters dressed as, well, characters -- King Digital (KING) -- and piles of food -- Zoe's Kitchen (ZOES). It all made you feel as if you were seeing a top right in front of your eyes. They always say there's no bell that signals the top. Not true: The opening bell of the New York Stock Exchange foretold all you needed to know.

In fact, it's gotten so negative out there that this week we saw postponements in not one, not two, but three of the biggest prospective IPOs: the $10 billion troika of AirBNB, DropBox and Box. I say "softly" because there are so many rules around IPOs that it's almost as if you can't really talk about them once a deal has been filed. Let's put it this way, though. The reports seem pretty darned thorough that those deals, all of which were putatively valued at $10 billion in the last round of financing, have been shelved.

I can't stress how important these postponements are. While the frenzy in the public markets has been well-documented, the fundraising in the private market has been pretty darned insane. These $10 billion valuations for two data-storage companies, and a website for renting your own house out, were predicated on an extremely robust red-hot IPO market.

The sizzle is now gone. With that, perhaps, this lunacy -- companies with little to no profit, but fast revenue growth, being valued at $10 billion in the last round of financing -- could, at last, be cooling. Never forget the process. The venture capitalists back new companies at repeatedly higher rounds of valuation. The VCs know that they can either flip these start-ups to public companies desperate for growth, or they can tap the insanely hot public markets.

If the latter has cooled, then the process will go on hold and the stock market will be able to digest all of the new merchandise. Of course, we know that things have cooled by the dearth of new IPOs and the non-stop sliding of the newer techs and biotechs and everything that has come with them. When GrubHub, the food-delivery company, is the beacon -- the stock that's held up the best after its IPO -- it doesn't say much for the market. That's especially given that the company looks eerily like the stuff that got jammed down our throats back in 2000 or, alas, never even had a chance to come public because of the stock market's collapse.

Nevertheless, this $10 billion troika of delayed IPOs can come right back on in a drop of the hat, so don't get too enthused. And, believe me, the Alibaba deal will cause lots of top chatter if it ever comes.

Finally, we saw a new pattern last night with the trading in Yelp (YELP) after the company's quarter was announced. Ever since Salesforce.com (CRM) announced its quarter at the end of February, the post-earnings pattern for almost every one of these newbies has been a huge share jump after hours and then a crash to earth by mid-morning. Last night Yelp's stock immediately headed down after its earnings announcement, and then jumped back up in after-hours trading. New pattern? We'll have to see if Yelp holds.

Any divergence from the 2000 apocalypse would be most welcome for the bulls. We finally got a couple of them. But it's a total "stay-tuned" situation.

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